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CFPB: Mortgage Servicing Rules Update: Stay the Course. Be Vigilant. Relief may be on the Way.

Posted By USFN, Thursday, February 1, 2018
Updated: Monday, January 29, 2018

February 1, 2018

by Wendy Walter
McCarthy Holthus LLP
USFN Member (Washington)

October 19, 2017 arrived and the first segment of the Consumer Financial Protection Bureau’s (CFPB) promulgated servicing regulations went into effect without much ceremony. The CFPB has other concerns, and a massive leadership change could mark the pivotal point for this controversial agency. For almost a year, the agency had been the subject of speculation regarding the political ambitions of its former director, Richard Cordray, who was rumored to be interested in running for governor of Ohio in the 2018 election. Cordray, after failing to launch the controversial arbitration rule, resigned on November 24, 2017 — cutting short his five-year term by approximately six months.

Acting Director Appointment x 2
In his wake, the former director took a parting shot to the Republican administration and attempted to appoint his chief of staff, Leandra English, to the acting director position. In a November 27th piece in the National Review, author Ronald Rubin indicated that this appointment was an attempt to cover up evidence of employee misconduct related to the arbitration rule, as well as alleged indiscretions against CFPB senior managers. Rubin is a former enforcement attorney at the CFPB; he was also a keynote speaker at the USFN Legal Issues seminar in July 2017.

President Trump, using his authority under the Vacancy Act, appointed Mick Mulvaney to the acting director position. It was quite a controversy when it came to light that two acting directors appointed to the same position were each likely to show up to work on the Monday following Thanksgiving. The president’s appointment was challenged, with English filing a lawsuit seeking a temporary restraining order. Heard on November 27th, Judge Timothy Kelly (a Trump nominee) denied the TRO — as well as a preliminary injunction on January 10th. This legal reasoning was further supported by the CFPB’s general counsel in a memo dated November 25, 2017, in which she concluded “that the President possesses the authority to designate an Acting Director for the Bureau under the [Federal Vacancies Reform Act], notwithstanding [12 U.S.C.] § 5491(b)(5).”

Mulvaney Takes Charge
The president’s appointee hit the ground running — “kicking the tires” on the organization. After assuming the position, Mulvaney imposed a hiring freeze and a regulatory freeze. The civil penalties fund was frozen for 30 days. He promised to review all pending lawsuits and made it clear that things will be different in all areas: enforcement, investigations, and rulemaking. Under President Trump’s directive, Mulvaney will try to protect “people without trampling on capitalism.” He also commented at how frightening the scope of his powers as acting director might be. The legal challenges presented speak volumes on how powerful and impactful this agency has become.

What’s Next?

So where does this leave the regulations effective in April 2018? They are on the books and will take effect unless there is rulemaking to invalidate their effectiveness. In light of the fact that there needs to be a permanent director appointment, plus given the hundreds of lawsuits at issue — not to mention the three proposed rules open for comment — there is certainly a lot to sift through. Broad structural issues might be the focus, rather than the “surgical precision” necessary to fix the regulations that have been promulgated in mortgage servicing. Other industries including payday lending, debt collection, and student lending may be breathing a sigh of relief as the proposed regulations and regulatory agenda will be scrapped.

The acting directorship is valid for 200 days, or indefinitely if there isn’t an appointment by the Senate. Even if the Democrats can muster enough votes to block appointment of the next director, it will not help them: Acting Director Mulvaney and his team are Republicans, have a completely different agenda than former Director Cordray, and are not fans of the Bureau and the massive amount of power that is held by its director. Mortgage servicers should keep a close eye as this 1,500-person agency fundamentally changes and an air of transparency blows through.

Copyright © 2018 USFN. All rights reserved.
Winter USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."


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